India recorded one of the fastest economic expansions globally in the April–June quarter, with real GDP climbing 7.8%.
But this strong growth is struggling to lift equity markets, as nominal growth, corporate earnings, and foreign investor confidence show signs of strain.
The divergence is driven by slowing pricing power, weaker credit growth, and new US tariffs that threaten to cut into export revenues.
While the economy’s headline numbers remain robust, the pressure on corporate performance highlights the growing gap between India’s macroeconomic momentum and the realities facing listed companies.
Corporate earnings hit a seven-quarter low at 3.4%
India’s nominal GDP growth slipped to 8.8% in April–June, down from 10.8% in the previous quarter, pointing to weaker inflationary support.
This slowdown was mirrored in company earnings, with the top 3,000 listed firms reporting revenue growth of just 3.4% year-on-year, the weakest pace in seven quarters.
The same measure had stood at 5.1% in January–March and 6.8% a year earlier, according to ICICI Bank Global Market Research.
Analysts noted that corporate earnings are more closely aligned with nominal GDP, meaning lower price growth directly dampens revenue and profit margins.
US tariffs drive foreign investor outflows of $15 billion
The strain was intensified by US tariffs of up to 50% on Indian goods, imposed in August by President Donald Trump. This has already resulted in a net $15 billion withdrawal from Indian equities by foreign investors so far this year, including $4 billion in August alone.
Punitive duties are expected to shave 0.6–0.8 percentage points off India’s real GDP if they remain in place for a year, while sectors like textiles, gems, and jewellery face job losses and stalled investment.
The benchmark Nifty index has gained only 4% this year, making India the third-worst performer in MSCI’s Asia basket, ahead of only Thailand and Indonesia.
Consumer staples and banks show signs of stress
The slowdown has been evident in consumer staples. Hindustan Unilever reported revenue growth of 4% in April–June, while Colgate Palmolive India posted a 4% decline. Weak demand, combined with higher tariffs, has weighed on margins.
On the financial side, analysts warned of slower credit growth and potential asset quality issues for banks, which may extend the cautious stance of global investors.
With nominal GDP for the current financial year projected at 8.5–9%—the lowest in two decades outside the pandemic years—earnings and equity performance may stay under pressure, Jefferies noted in a recent report.
Valuations ease, reforms and GST vote could boost recovery
Despite current challenges, some fund managers see opportunity in the correction. India’s market still trades near its long-term average, but the underperformance relative to peers has narrowed the valuation gap.
Aberdeen Investments pointed to opportunities across banking, infrastructure, and consumption sectors, while Franklin Templeton highlighted government reforms as a possible trigger for a turnaround.
A proposal to reform goods and services tax (GST) is set for a vote this week, aimed at lifting consumption across categories from biscuits to air conditioners.
Economists say stronger household spending could set off a cycle of private capital expenditure and credit expansion over the next 6–12 months.
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